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What is the impact of pensions on saving?

Author

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  • Alicia H. Munnell
  • Frederick O. Yohn

Abstract

The enormous growth in both Social Security and private pension plans has stimulated much interest in the impact of these retirement programs on individual saving behavior and the level of national saving. The first issue is the extent to which employees covered by pension plans reduce their own direct saving in response to expected retirement benefits; the response of individuals to guaranteed retirement income will determine, to a large extent, their well-being in retirement. For a nation concerned about saving and capital formation, the second issue is the impact of collectivized retirement saving plans on the national saving rate. This impact will depend not only on individual responses to promised pension benefits, but also on the extent to which firms undertake direct saving, and, if they do not, the extent to which shareholders recognize and compensate for unfunded pension liabilities. The effect of pensions on national saving also requires determining the degree to which increased saving induced by favorable tax provisions exceeds the loss of government revenues. ; This paper will lay out the questions that need to be answered in order to determine the impact of private pension plans on saving, highlight those aspects of pensions that may complicate the analysis, summarize the results of empirical research in this area, and finally make recommendations for improvements in the data.

Suggested Citation

  • Alicia H. Munnell & Frederick O. Yohn, 1991. "What is the impact of pensions on saving?," Working Papers 91-5, Federal Reserve Bank of Boston.
  • Handle: RePEc:fip:fedbwp:91-5
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    File URL: http://www.bostonfed.org/economic/wp/wp1991/wp91_5.pdf
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    References listed on IDEAS

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    1. Modigliani, Franco, 1988. "The Role of Intergenerational Transfers and Life Cycle Saving in the Accumulation of Wealth," Journal of Economic Perspectives, American Economic Association, vol. 2(2), pages 15-40, Spring.
    2. Jeremy I. Bulow & Randall Morck & Lawrence H. Summers, 1987. "How Does the Market Value Unfunded Pension Liabilities?," NBER Chapters,in: Issues in Pension Economics, pages 81-110 National Bureau of Economic Research, Inc.
    3. Alan S. Blinder, 1982. "Private Pensions and Public Pensions: Theory and Fact," NBER Working Papers 0902, National Bureau of Economic Research, Inc.
    4. Hemming, Richard & Harvey, Russell, 1983. "Occupational Pension Scheme Membership and Retirement Saving," Economic Journal, Royal Economic Society, vol. 93(369), pages 128-144, March.
    5. Philip Cagan, 1965. "The Effect of Pension Plans on Aggregate Saving: Evidence from a Sample Survey," NBER Books, National Bureau of Economic Research, Inc, number caga65-2, January.
    6. Boskin, Michael J, 1978. "Taxation, Saving, and the Rate of Interest," Journal of Political Economy, University of Chicago Press, vol. 86(2), pages 3-27, April.
    7. Kotlikoff, Laurence J, 1979. "Testing the Theory of Social Security and Life Cycle Accumulation," American Economic Review, American Economic Association, vol. 69(3), pages 396-410, June.
    8. Feldstein, Martin & Seligman, Stephanie, 1981. "Pension Funding, Share Prices, and National Savings," Journal of Finance, American Finance Association, vol. 36(4), pages 801-824, September.
    9. Pitelis, Christos N, 1985. "The Effects of Life Assurance and Pension Funds on Other Savings: The Postwar UK Experience," Bulletin of Economic Research, Wiley Blackwell, pages 213-229.
    10. Feldstein, Martin & Pellechio, Anthony, 1979. "Social Security and Household Wealth Accumulation: New Microeconometric Evidence," The Review of Economics and Statistics, MIT Press, vol. 61(3), pages 361-368, August.
    11. Michael J. Boskin, 1978. "Taxation, Saving, and the Rate of Interest," NBER Chapters,in: Research in Taxation, pages 3-27 National Bureau of Economic Research, Inc.
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    Citations

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    Cited by:

    1. Munnell, Alicia H., 1991. "Are Pensions Worth the Cost?," National Tax Journal, National Tax Association, vol. 44(3), pages 393-403, September.
    2. Leechor, Chad, 1996. "Reforming Indonesia's pension system," Policy Research Working Paper Series 1677, The World Bank.
    3. Peek, Joe & Rosengren, Eric S, 1997. "The International Transmission of Financial Shocks: The Case of Japan," American Economic Review, American Economic Association, pages 495-505.
    4. Alan L. Gustman & Olivia S. Mitchell & Thomas L. Steinmeier, 1993. "The Role of Pensions in the Labor Market," NBER Working Papers 4295, National Bureau of Economic Research, Inc.
    5. Jeannine Bailliu & Helmut Reisen, 1998. "Do funded pensions contribute to higher aggregate savings? A cross-country analysis," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), pages 692-711.
    6. Bertrand Wigniolle & Philippe Michel & Pascal Belan, 2002. "Pension funds and capital accumulation," Economics Bulletin, AccessEcon, vol. 4(1), pages 1-8.
    7. Alan L. Gustman & F. Thomas Juster, 1995. "Income and Wealth of Older American Households: Modeling Issues for Public Policy Analysis," NBER Working Papers 4996, National Bureau of Economic Research, Inc.

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    Keywords

    Saving and investment ; Pensions;

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